Bottom in bonds before FOMC meeting?

A Commerce Department report today showed retail sales in the U.S. rose 0.2 percent, the smallest increase in four months, while the Thomson Reuters/University of Michigan preliminary September index of consumer sentiment fell to 76.8 from 82.1 last month. Many economists forecast that the Fed will taper its $85 billion in monthly bond-buying by $10 billion to $75 billion after next week’s meeting.

Equities: The DEC13 emini SP500 (CME:ESZ13) is up 2.5 points today to 1680.75. We have the key decision level at 1679, and a potential upside target at 1695. This overall trend in equities still seems to be higher, and when measured against some of the biggest bull market years in history, this year does not rank as a true standout. Thus, in other words, we would not be surprised to see this market head towards our next target of 1695, especially if next week’s (potential) taper announcement falls short of the $10B estimate, or doesn’t happen at all! This is possible. Possible counterpoints to the rally thesis are rising oil prices as well as a potential military intervention in Syria.

Bonds: We focus more on the bond market today. The DEC13 US 30yr bond futures (CBOT:ZBZ13) are up 10 ticks today to 129’31, resting right near their key level of 130. We do believe that the bonds could be preparing for a small but meaningful rally from these levels, mainly because we don’t think that the Fed will taper MORE than expected next week. This could cause a short-covering rally in the bonds, to at least 132, our next target higher. The short term 200EMA comes in at 131’03, so this would be the first level to breach before 132. Also, with the outcome in Syria still unknown, this could cause bond buyers to take interest in “safe-haven” financial assets.

Currencies: The DEC13 USD index (NYBOT:DXZ13) is weak once again, today down 5 ticks to 81.63. The USD has had quite a bit of trouble recently in maintaining gains, as other countries such as UK, Canada, New Zealand, and Europe all have been either putting out upbeat economic data or even discussing higher interest rates in the future. Interestingly, the DEC13 Swiss Franc has also rebounded nicely from its heavy selling last week. Today, the CHFUSD futures are up 13 ticks to 107.71. We believe this currency’s gains could potentially be capped at 108.20 due to the global growth phenomenon causing investors to be less excited about seeking a safe haven currency such as the Swiss Franc. If things heat up in Syria, this could change.

Commodities: DEC13 Gold futures (COMEX:GCZ13) are down big once again today, this time down $22 to $1308. Our next two support levels are $1301 and $1266. We would not be surprised to see the $1266 level hit at some point in the near future as their seems to be a powerful strengthening cycle in the global economy. OCT13 crude oil is down $.80 to $107.80. This commodity seems to be in an uptrend to us, and we believe overall WTI will head higher, possibly beyond its recent high of around $112, up to $118. As crude oil potentially goes higher, it could create some drag on the economy, but it doesn’t seem to be doing so yet.

About the Author

Anthony Lazzara, CEO of Newport Beach, Calif., commodities investment firm Lido Isle Advisors, spent 10 years as a trader and floor broker at the Chicago Board of Trade and Chicago Mercantile Exchange. Anthony has significant experience in the energy, fixed income, and equity futures markets. After being a long-time independent futures trader, Anthony saw a tremendous opportunity to educate investors on how to invest in professional traders. Anthony is now focused on his duty as CEO of Lido Isle Advisors.